If you are approaching the retirement years, you may already know that the biggest expense in your budget may quite possibly be health care expenses. According to a recent CNBC News article, retirees will be lucky if their retirement expense is just $280K. Yes, you heard that correctly, $280K. A healthy couple, retiring in 2018 can expect to pay an average of $280,000 for medical expenses during their retirement years—and that’s if all goes well. Unexpected medical conditions, medical emergencies, or disabilities from a medical condition will all cost even more. This is the smallest incline in medical expenses projected for retirees since 2014. But, those who retire BEFORE they are eligible for Medicare may face even more health care expenses in the budget—due to a gap in health insurance coverage.
Retirement Health Care Expenses
The facts and figures come from Fidelity Investments, reporting that a 65-year-old healthy couple will need a total of $280K to cover their health care expenses during the duration of their retirement years. The breakdown equates to $133K for a man and $147K for a woman, for out of pocket expenses associated with Medicare parts A, B and D. These numbers do NOT include over the counter medications, dental services (other than a few exceptions) or long-term care expenses. “Actual assets needed may be more, or less, depending on actual health status, area of residence, and longevity,” says Fidelity.
Offsetting the fact that prescription drug costs have started to level out, is the fact that retirees are living longer than ever. If costs continue to climb each year, retirees of the future will have a tough time being able to save enough for retirement health care expenses.
Impact of Early Retirement
Nearly 48% of American workers retire before the full retirement age of 65, when Medicare benefits are available, according to the 2017 Retirement confidence Survey from the Employee Benefit Research Institute. But, newer survey information from Fidelity, shows that 50% of workers are retiring from age 50 to 64. “Those people were much less prepared on what the [health-care] costs would be, and how they would manage them,” said Katie Taylor, at Fidelity Investments.
Bridging the gap, between early retirement and Medicare qualification age, has resulted in additional premiums of over $500 per month for insurance, for many retirees. Many people end up using Social Security or retirement savings to pay for those extra health care expenses.
“These are big numbers, and a concern is that consumers will take a look at it and do the ostrich thing, and stick their heads in the ground,” Manion said. “We can’t do that.”
Advice from a Professional
Professional financial planner, Erika Safran in New York, NY, encourages retirees to work with a financial planner to ensure you are prepared for retirement with an overall sound financial plan, rather than to worry about the details of health care costs.
In addition, she says to explore resources or benefits provided by the employer; 6 in 10 early retirees continued to have employer sponsored coverage, or through a spouse’s employer. “A lot of people rely heavily on employer benefits to help bridge the gap,” Taylor said. Another good resource is a health savings account which can offer triple tax advantages for those with high deductible health plans. These funds can be taken out (without incurring taxes) to pay toward health expenses. “Not only can the funds be used for care, but they can also be used for premiums,” Safran said. “That’s an excellent way to save for future health care costs on a pretax basis.